36. Red Corp stock has a beta of 1.6, the risk-free rate is 6%, and the expected return on the market portfolio is 11%. Using the CAPM, what is Red cost of equity?

A. 5%

B. 14%

C. 11%

D. 6%

E. None of the above

________ 37. Dis Corp has assets worth 6.9 million. Two million dollars are financed with debt that costs 10% a year in interest. If Dis's contribution margin is $175 per unit, the how many units must be sold to cover the interest payment? Round your answer to the nearest tenth of one unit.

A. 1,142.9

B. 11,428.6

C. 39,428.6

D. 28,000.0

E. None of the above

_________ 38. A firm with high operating leverage will likely have a high beta because

A. It must have the same beta as the market portfolio

B. The high amount of debt will cause a high beta

C. High operating leverage causes high volatility of cash flows

D. Only blue chips have low betas

E. None of the above

_________ 39. A firm has $2 million in debt and $7 million in equity. It pays 6% interest on its debt and the CAPM gives it a required return on equity of 12%. The corporate tax rate is 30%. What is this firms weighted average cost of capital?

A. 6.54%

B. 10.26%

C. 5.93%

D. 4.2%

E. None of the above

________ 40. Which of the following is (are) true about firms with a low degree of operating leverage?

A. Have higher fixed costs than firms with lower operating leverage

B. EBIT fluctuates very little

C. EBIT fluctuates considerably

D. Both A and C